How Much Life Insurance Do I Need? The DIME Method Explained

The DIME method adds up what your family would need to cover if your income stopped: Debt, Income replacement, the Mortgage, and Education. You then subtract coverage and savings you already have.

A worked example

A hypothetical parent earns $75,000 a year, with two children, a $250,000 mortgage, $12,000 of other debt, $75,000 of workplace life insurance and $30,000 in savings. They want to replace 70% of their income for 18 years.

Component	Amount
Debt + $15,000 final expenses	$27,000
Income replacement (70% of income for 18 years, in today's dollars)	$757,528
Mortgage	$250,000
Education ($50,000 per child)	$100,000
Total need	$1,134,528
Minus existing coverage and savings	−$105,000
Coverage gap	$1,029,528

Rounded to how policies are sold, that is about $1,050,000 of coverage.

The income figure is less than 70% × $75,000 × 18 years ($945,000). A lump sum can be invested while it is drawn down, so the family needs less up front. This example assumes a 5% return and 2.5% inflation.

Estimate your own coverage with the life insurance calculator.

Things that change the answer

• Workplace coverage usually ends when the job does. Treat it as temporary when sizing your own policy.
• A partner's income and Social Security survivor benefits can reduce the need.
• The need shrinks over time as the mortgage is paid down and children grow up, which is why level-term policies are a common fit.

This estimates coverage, not which product to buy. A fee-only adviser can help with complex situations.

Source: NAIC: Life insurance consumer guide.